The
combination of rising gasoline prices and the steepest increase in the
cost of food in a generation is threatening to push the US economy
into a recession, according to Craig Johnson, president of Customer
Growth Partners.

***

Of course, at lower income levels,
these percentages are much higher. One sign of the stress some
consumers are already feeling is that some AAA offices have already
seen an increase in out-of-gas service calls, as motorists try to put
off filling their tanks or drive around trying to seek out the gas
station with the least expensive price.

And as the New York Times notes, food producers are selling smaller portions for the same price, due to cost - push inflation:

With
prices for energy and for raw materials like corn, cotton and sugar
creeping up and expected to surge later this year, companies are barely
bothering to cover up the shrinking packs.

While it's tempting to say we've got inflation, things are not so black-and-white.

Anything
typically financed by debt is likely to see its prices plunge
dramatically, like houses and cars, as the ongoing Great Bear bust
continues to destroy the gross excesses of debt via higher long rates.
Conversely, anything not typically ‘paid for’ with debt, including
groceries and general living expenses, is almost certain to rise in the
coming years. We are staring down a brutal environment of widespread
inflation marked by various sectors witnessing falling prices as debt
leverage implodes.

You
know from experience that when you're in a national park, movie
theater or some other contained place, prices are higher than
elsewhere.

Basically, the stores in such places know you
can't go somewhere else, so they can charge you what I call "got you"
prices. In other words, you're a captive buyer, and they've "got you".

I've noticed the same thing with health care costs. My family's health care premiums increased 6% last year - on top of the 6% increase the year before.

This
is "got you" prices. The health care industry knows that Americans
are desperate for health care, and that if they raise prices, people
will pay.

I've previously pointed out that inflation versus
deflation is not necessarily an all-or-nothing proposition: we can have
inflation in some asset classes and deflation in others.

So
my current theory is that we will have deflation for some time in
most asset classes, but inflation in the "got you" classes of basic
necessities that everyone needs - food, energy, and health care.

In a tough economy, companies that can squeeze broke consumers for more money will do so

Jeffrey Saut - Chief Investment Strategist and Managing Director of Equity Research at Raymond James - is now confirming that theory:

Inflation,
or deflation, the argument rages; yet on CNBC last Thursday I opined
that we are currently experiencing both... It appears to me that the
country’s top quintile of wage-earners (the folks with the most assets)
are experiencing deflation as their home prices have collapsed, their
401K’s are substantially below where they were in October 2007, their
bonuses have been “whacked,” and the list goes on.

Our
“bet” is that the inflationary forces will eventually win out because
that’s the way it has always played since the Great Depression.

But
that is not controversial. Indeed, even the greatest advocates of
the deflation theory say we may eventually get inflation. For
example, David Rosenberg says that deflationary periods can last years before inflation kicks in.

Despite
the seemingly tame headline inflation numbers, consumers never seem
to see price declines in certain categories like education and health.
For instance, prescription drug inflation escalated to 5% from less
than 3% in 2007 and 2008.

So, it is pretty obvious what we have here--biflation--instead of deflation. Biflation is a state of the economy where inflation and deflation occur simultaneously.

***

The
price increase of commodities is caused by the increased money flow
(via loose monetary policy) chasing them. On the other hand, the growth
of economy is tempered with high unemployment and decreasing
purchasing power. This has resulted in a greater amount of money
directed toward essential items (inflation) and away from
non-essential items and things required credit to buy such as house
and cars (deflation).

***

While all of that money Federal
Reserve pumped into the system could in theory cause inflation ...
weak banks and slack in the economy would weigh against that. Indeed,
it is likely that crude material price increases could begin to move
down the supply chain; however, end markets are still too weak to
allow a full price increase.

So, in the near term, biflation
could be around through possibly 2012 with pockets of inflation seen
in certain sectors such as energy and feedstock chemicals, and
deflation/low inflation in other sectors, netted to a moderate
headline inflation number.

Of course, instead of directly helping the American people, the government threw trillions at the giant banks (including foreign banks; and see this)
. The big banks have - in turn - used a lot of that money to speculate
in commodities, including food and other items which are now driving up
the price of consumer necessities. Instead of using the money to hire
Americans, they're hiring abroad (and getting tax refunds from the government).

Ironically, the financial system is in worse shape than it was in 2008, according to Standard and Poors:

Additional
fiscal risks we see for the U.S. include the potential for further
extraordinary official assistance to large players in the U.S.
financial or other sectors, along with outlays related to various
federal credit programs. We estimate that it could cost the U.S.
government as much as 3.5% of GDP to appropriately capitalize and
relaunch Fannie Mae and Freddie Mac, two financial institutions now
under federal control, in addition to the 1% of GDP already invested
(see "U.S. Government Cost To Resolve And Relaunch Fannie Mae And
Freddie Mac Could Approach $700 Billion," Nov. 4, 2010, RatingsDirect).
The potential for losses on federal direct and guaranteed loans
(such as student loans) is another material fiscal risk, in our view.
Most importantly, we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008 ....

In other words, the government has thrown trillions at the big banks,
but instead of using those funds to shore up their balance sheets and
return to prudent banking practices, the big boys have used the money as
new gambling chips for speculative commodities plays ... which are
hosing the American consumer at the grocery store, Wal Mart and the
pump.

Comment viewing options

The government deliberately forced inflation starting in the early 90s if not earlier. The housing market felt it first, and absorbed the excess money. Then the housing inflation collapsed, they pumped the inflation pump even harder we got stock market inflation. Then commodity inflation and finally inflation is making it to the local stores.

Don't think inflation is just starting, or that houses are deflating while other things are inflating. No, housing got its inflation first and got pumped up till the bubble blew, then the stock market, now commodities and everyday goods.

The main reason food prices are soaring is because of peak oil, unless the food happens to be organic, and still due to transportation costs, it will continue to rise. The best and cheapest way to farm is now locally and organically, thank goodness. Long corn, fish, and crab meal and bat guano.

In defense of the banksters, I suppose, they are willing to use the money they don't pay on taxes to buy treasuries, i.e., loan it to us with interest. Hey, if we don't borrow it from them we don't have it to "save" them with . . . which would seriously impact earnings, eliminate bonuses and just blow the wonder of the Wealth Effect to Hell.

I paid into my SS but it was raided by politicians. Medicare is health insurance program going bankrupt due to corruption and more expensive in private sector due to quest for profit---both suck. But there is need for catastrophic health insurance. Human condition is to take from one another and that is why we need laws based on social norms. Not sure who will take your house with a gun if you pay your property tax and mortgage. However if your short on cash its your fault, or the economic system especially if your job in US has been outsourced overseas on a mass scale. Not sure of your point , but seem to be blaming unequel application of law and mans inability to understand his political envirionment---cant argue with that. Also detect your discontent which is good but get the reason and blame right

I have not had "Health Care Insurance" for probably 15 years. I pay out of pocket for any costs that may arise. Usually only about $500. a year.

Why are people so fixated on paying for "Health Care Insurance"? When you pay for it yourself without insurance you negotiate the price with the provider. With Health Care insurance you do not. That is why the costs are so high. Providers charge what they want because "Insurance" pays the bill.

So, what happens if I really have a huge Medical Bill? I will pay them $25. per month, maybe forever. As long as I pay them they cannot begin collection proceedings.

But, how much have I saved over 15 years by not paying? Tons and tons of Money. I am not suggesting you do the same but maybe you should look into a Catastrophic policy with a $10,000. deductible.

Why is everyone so afraid of being uninsured? The only people that are insured are the sick people. That is why Insurance is so high.

You have been fortunate, thankfully. My dad never had a sick day in his life until he was 66 and his aorta burst at his abdomen. (AAA). The first 31 days in TICU cost US $1.2 million. The next 5 months in a special hospital spent trying to wean him off his ventilator cost over US $1 million. The next 2 months at a brain injury place ( brain was injured as the body sent all blood to critical survival areas) cost (I can't remember). He lived at home a further 6 years at a cost over 1.4 million with a 24/7 RN, wages, placement fees as nurses came and went, plus all fees an employer pays. He had nursing home insurance, but wanted to be in his home and hey, it was his $$. I agree with part of your thrust that that for the most part people should expect to pay all their medical costs; yet all should have insurance to cover a catastrophic event, IMHO and experience. I think catastrophic-only insurance for all US citizens is plausible and could be cost effective if not government run. While dad was in the TICU, there were car accident victims who stayed longer and spent more. As we cannot plan for every moment of tragedy, at least one may opt for catastrophic health coverage. Disagree?

Laws that appy to some but not others aren't really laws now are they?

Innovation is gone with incentives being replaced by thieving to pay entitlements. The zombies and their parties march on, distracted by platitudes and shallow issues. They make easy marks and are essentially slaves.

There's only one way to do things right, but billions or trillions [more appropriate] of ways to get it wrong.

America is getting what it deserves because we gave up on self reliance and national social justice and fairness for a blind faith in a capitalistic free wheeling global economy seeking cheapest labor at any subsequent consequence. When system froze up due to effort to keep Joe six-pack happy by shoving mortgages down his throat, banks were rewarded, instead of going out of business. Now we are pretending there is a recovery, when actually we have bankrupted entire system threatening reserve currency status with no possilbe way to repay mushrooming debt or engendering real national growth. Currently witnessing a mad scramble to hold anything of value but it will not save situation because entire system flawed . Changing system impossible without complete collapse and thats when all suffer including bankers and multinationals.

No one was forcing mortgages down anyone's throat. Borrowers share the blame in borrowing more money than they should to buy bigger houses than they should -- because borrowers are generally as greedy as the lender.

Not a banker. But few on this site see the borrowers as greedy and reckless in their borrowing. Borrowers are responsible for themselves.

Are you kidding? Don't you remember the way they advertised? And once they got you in the office they would do everything to put the deal over including encouraging the borrower to commit fraud and committing fraud themselves.

The suckers never stood a chance.

I watched the whole process from a distance. My first thought was, this is crazy. This whole thing can only end in disaster. My second thought was, well, are the borrowers crazy? Are the banks crazy? Is the government crazy? Or am I crazy? There must be something there I am not seeing.

It turned out there was plenty nobody was seeing but the point is, I am a fairly sophisticated real estate investor and I would have been sucked in. So what chance did the average borrower have? And let's not forget, half the people in the country are below average.

Actually, Bob, the ratio runs about 50/50 per my seat-of-the-pants statistical analysis. Oddly enough, it seems to be those who don't have an underwater mortgage who see borrowers as losers, and those who felt shafted by a banker or mortgage loan officer who see it the other way. Funny that, eh? In actuality, mortgages were marketed and promoted as a way to get a 4-wheeler, new car, vacation, or other amenity my milking your home mortgage. That puts much of the blame in the laps of the loan-makers. Securitization (a wholly Wall Street concoction) laid the foundation for the misdirection and skulduggery that did happen to some borrowers. The Fed had full authority to put a stop to all the foolishness, but they never raised a hand. In fact, if you recall, the Maestro praised the glory of it all. How does a regular J6P have defense against such formidable odds?

"the financial system is in worse shape than it was in 2008, according to Standard and Poors" is not what this says: "we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008 ...."

Words matter. The phrase "than we considered them to be" changes the meaning considerably.

They are saying they are more worried today than in 2007. But recall they were not particularly worried at all in 2007 and missed the coming financial system dangers of 2008-09. They are finally waking up to the degree of risk out there, but it is unclear from the quote provided whether they see the actual risks today worse than 2007.

It's inflation (actually Hyperinflation but they won't say that until it's to late), and McDonalds and Walmart is telling the truth. I shop at Walmart and they where already making packages smaller and giving less for the same item a few months ago you would have gotten more back in early 2009. But this time it's exponentially going up and service is getting reduced. As an example I bought off and on precooked Tony Romas 24oz ribs, but now they have cut the package down to 3 servings (8oz's) per pack and costs 1 dollar less than the 24oz one that they don't carry anymore. This isn't inflation, it's hyperinflation and it's showing up slowly but surely.

You can rest assured that Walmart is making their money while they can. Package size, in-store promotions, and other marketing schemes will let them make money all the way down (up?). Walmart is not run by a bunch of dummies; they have the long-term mentality of the Chinese. Innovation and mechanization of the entire store operations have given them the ability to make money on very slim margins. Walmart is like the proverbial cockroach: They will survive the Kondratieff winter.

In the UK this change is permanent with a few upswings on a downward trajectory.

While there is such a culture of dependency fostering subclasses such as...whole communities with generations of unemployables, rich kids who hate whatever it is the uk stands for, apologist race relations with islam beginning to encourage 'patriotic' groups.

We can all stay calm but in the uk u better start shitting it and listening to some of the guns n ammo guys around here.

And exactly what else is new? President Obama is an empty suit corporatist. Corporate profits are way up on the assumption that this would lead to recovery. It did not because the beneficiary corporations did not hire or expand they merely paid out larger bonsuses. Nevertheless this fact will not change policy because at the end of the day the President never had an original idea in his life. He has no center. He does what his corporate masters ask or more properly cadjole him to do. And with his huge want for election funds if you think anything is going to change you are in denial.

Erm, no, private business is to him just another tool for getting more power, to create more crisis, to get more power. He taught a course for ACORN on how to agitate to get ever more power, hung out with types at Columbia who dreamt of crashing the system by overloading it, went to an anti-american "church" for twenty years of rants against the american dream, was raised by anti-american nut jobs, launched his political career at a meeting at the home of an avowed terrorist, married a privileged woman who believes "America is a downright mean country" and on and on.

So, no, this guy is not an empty suit. He has an agenda. The agenda is right on track. A pro-american president would have vetoed the shit out of Congress' obviously irresponsible "spend till you puke" train wreck of a legislative agenda that started early in 2007.

Speaking of spend till you puke, I'm pretty sure the Iraq war started in 2003. If the government really really insists on wasting an extra hundred billion a year, I'll choose welfare for Americans instead of killing people overseas any day of the week. And last I checked Tarp was rammed through by a Republican president. Or has Dubya retroactively changed parties?